LONDON - Hewitt Associates, a global human resources consulting and outsourcing company has warned that approximately 15,000 people in the UK face losing at least 20 per cent of their pension benefits if Defined Benefit (DB) scheme trustees do not take control of investment strategy. The alternative could be a loss of £150 million in pension benefits over the next two years.

Russell Agius, principal consultant in Hewitt's Retirement Practice, said:

"Pension schemes have been hit from both sides by the economic crisis. On the one hand, volatile markets have severely impacted asset values and deficits have grown. On the other hand, liquidity and cashflow constraints mean that for an increasing minority of company sponsors, additional contributions to plug growing deficits are now, and for the foreseeable future, out of the question. We estimate that in the UK there are approximately 75 schemes with no resources to combat their deficits. They face a tough choice - scheme wind up resulting in company insolvency or identifying a winning investment strategy which can grow the assets."

There is a real danger that faced with mounting deficits and a significant deterioration in the sponsor's financial health, trustees may be forced to consider the closure of their DB scheme.  This in turn may trigger sponsor insolvency as the company is presented with an unaffordable pension debt for payment.

Russell Agius said:

"When an employer becomes insolvent, the Pension Protection Fund (PPF) can, to some extent, provide a safety net for the pension scheme, but the value of members' benefits is not fully secured by PPF rescue. Hewitt calculations show that around 15,000 DB scheme members could lose an estimated fifth of their benefits – valued around £10,000 each - if their scheme enters the PPF. Such an influx of insolvencies would lead to a bigger strain on the PPF, and ultimately the levy payers."

Hewitt says that the only real alternative for trustees in this situation is to reduce deficits with an investment strategy which mitigates uncontrolled risk while driving consistent returns.

John Belgrove, principal consultant in Hewitt's Global Investment Practice, said:

"Many UK DB schemes in this situation are running significant risks resulting from their traditional equity heavy narrow strategies, with relatively little governance resource and attention allocated to them. Sponsors rightly cannot stomach the financial roller-coaster ride that is the consequence of static long-term investment thinking, yet closing a pension scheme should only be an action of last resort.

Reviewing the scheme's investment strategy, its current asset allocation and risk exposures is absolutely critical. In today's complex investment environment, there are options available to trustees that can genuinely improve scheme efficiency and ultimately reduce further potential strain on the PPF. A combination of clearly defined strategic goals, an implemented risk mitigation programme and real time market decision-taking focused on the strategic goals can deliver the necessary long-term investment performance with greater reliability. Trustees should act now and re-view their options."

About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organisations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping to make the world a better place to work. For more information, please visit www.hewitt.com

Other Contacts
Claire Maloney, Capital MS&L, 020 7307 5341 or claire.maloney@capitalmsl.com
Wendy Svirakova, Capital MS&L, 0207 255 5177 or wendy.svirakova@capitalmsl.com